Sallie's chairman talks tough and plays coy

NEW YORK (Fortune) -- Sallie Mae's (Charts, Fortune 500) outspoken chairman, Albert Lord, said Thursday at a shareholders meeting in New York: "I often treat the company as if it were my own."

While this appeared to be an ironic aside made during the meeting's introductory remarks, one thing can't be denied: Lord has taken full ownership over Sallie's fight with J.C. Flowers, J.P. Morgan Chase (Charts, Fortune 500) and Bank of America (Charts), which want to renegotiate the deal they struck in April to buy the nation's largest student loan company for $25 billion, or $60 per share.

But is Lord's highly vocal and active role in this unusually public scrap a good thing for Sallie? Is Lord the ideal man to face off against Christopher Flowers, the driving force on the buyers' side, and a hard-bargaining ex-Goldman Sachs banker? Or could Lord's openly combative, unpredictable style end up being a hindrance for Sallie, because he might overreach and leave his company without a deal close to $60?

Lord's latest move is to say that Sallie has received feelers from potential alternative buyers. "We get calls," Lord said at the meeting. "We can't talk to other buyers, but we can listen."

Fortune raised the possibility of other buyers showing an interest late last month. Listening to how Lord talks about potential new buyers gives a good insight into the dilemmas he faces in this battle, and the calculating mind working behind the barbs directed at the Flowers group.

In all of this, it's important to remember that if the lender gets sold for $60 per share, Lord makes $225 million from Sallie Mae stock and options. That has to be attractive for a company that reported a $344 million loss in the third quarter.

Sallie is forbidden from talking to other potential buyers by its merger agreement with the Flowers group, which outbid another buyer by a $1.50 per share in April, according to a lawsuit Sallie filed against the Flowers consortium Monday that claims buyers had unlawfully breached the merger agreement by allegedly refusing to consummate the deal. A person familiar with the April negotiations said the other bidder was Blackstone Group, the large private equity firm. Blackstone declined to comment.

And when asked about other buyers Thursday, Lord said that he had bumped into someone from Blackstone at the shareholder meeting. Quips like that can distract from other remarks that might give an idea of the careful game Lord may be playing.

For example, for all the talk about other buyers, Lord also said he wouldn't be keen to try and re-sell the company now, because of potentially lower demand, due to downturns in the private equity and credit markets. "I don't think this is really a great time to be creating a deal," he said. Of course, Lord may be sending a message to other buyers: Don't think you can use our fight with Flowers to get us for much under $60, because we're prepared to wait to sell at a good price.

However, as in all battles, it's not just the personalities of the generals that determine the outcome. In the Sallie vs. Flowers saga, the side that wins could be the one whose arguments hold sway in the Delaware Chancery Court, where Sallie's suit was filed. But could Lord's aggressiveness cause Sallie to overreach in the courts?

To answer that, it is necessary to assess the legal arguments. At the nub of the legal dispute is the College Cost Reduction and Access Act, legislation passed in September that reduces federal subsidies to student lenders, and thus puts a dent in Sallie's profits. At issue is a part of the merger agreement that could lead to a renegotiation of the deal, often called a "material adverse change" clause, or MAC.

Flowers says a renegotiation of terms can occur if the student lending bill that gets passed is simply more adverse to Sallie than the bills proposed at the time the company's annual report was filed in March. And the College Cost Reduction and Access Act is more adverse.

Sallie's side says that's a misreading. They say the proper way to read the merger agreement is first to compare the most adverse legislation around in March with the College Cost Reduction and Access Act. Then it has to be asked if the incremental change - the extent to which the final act is more adverse compared with earlier bills - would have a material impact on Sallie's business. Of course, it doesn't, says the Sallie side, pointing out that the enacted bill cuts government subsidies on certain student loans by 0.55 of a percentage point, compared with 0.50 of a percentage point in earlier legislation.

Flowers, the Sallie side claims, would have to expect the court to believe that Sallie was materially hurt by that tiny 0.05 of a percentage point difference. Preposterous, they say.

Clearly, though, Sallie's lawyers could have been more precise in crafting the MAC clause. Lord himself said Thursday that this clause was "ambiguous to the layman." But it may be less so to a court, and Sallie's shareholders can't be pleased about the stock's fate, for the foreseeable future, hanging on that.